The employment situation has been gradually improving. Has it reached the point where an upside surprise is possible?
Like Housing, Unemployment has been a headwind facing the economy. The script following a major credit crisis typically involves high unemployment, low growth, and delveraging that impacts consumer spending, The post 2007-09 crisis is no different.
As of late, we have seen not great, but improving employment data. The Census noise is now behind us, and we are entering a period that will likely determine the next 12-18 months of economic growth.
The October data saw 151,000 new hires, and significant revisions to the prior 2 months. Put this number in context — we need 150k per month just to keep up with population growth. If we were to get a 150k/mo for the next 12 months,m we would not see an appreciable decline in the Unemployment rate.
A 200k monthly number (or better), however, will make a dent in the U3 Unemployment number. And the U6 number could also improve, as employers add hours to part time workers.
The psychology of a few months of strong data could have a very positive effect on hiring, wages, and capex spending.
If DC could marry an Accelerated Depreciation tax cut with a payroll tax holiday for just one year, I believe we would see a very signficant uptick in both Capex and Hiring. Add to that a temporary rate reduction for corporations repatriating overseas cash, and you have the makings of a more robust recovery.
Right now, I think more people would be surprised by stronger upside numbers than down. After a few months, it might even remove the fat thumb off the scales in favor of more QE2.
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Chain Store Sales, Monster Employment Index, ECB Announcement, Jobless Claims and Pending Home Sales Index later today could provide some insight into what Friday’s Employment situation might look like . . .
If we have significant capacity that is not being utilized, why would you expect much capex, even with an accelerated depreciation tax cut bonus? It might help in industries that don’t have excess capacity, but I’m not sure there are many of those.
Bringing some capex from the future to today could help, but I’m not sure we’d get much.
A payroll tax holiday would help. It would give people more money in their pockets, including lower income people. They are often cash constrained and would likely spend. Consumer spending equals more demand from business. They’d have to do more to meet that demand, which in turn could lead to more hiring and lowering of excess capacity.
As always, if we knew what the market expected, it would be easier to tell if our predictions were for a better or worse future than expected. Without knowing what the market expects, it’s much harder to tell whether news would surprise on the upside or down.
[...] On the possibility and meaning of upside economic surprises. (TBP) [...]
Government layoffs at all levels are running counter to private hiring and with the Rs promising budget cuts there will be move government cuts – and these are hire paying jobs, certainly compared to small business hires
s/b “higher” paying jobs
BR asked:
Will NFP Lead to More Capex, Hiring?
The employment situation has been gradually improving. Has it reached the point where an upside surprise is possible?
reply: ———— Yes and yes.
Re – upside surprise: The dimwits who glop together and form the consensus are no smarter than a lot of their listeners. They are just much better communicators and that is how most really earn their living.
Temporarily higher accelerated depreciation would increase capex this year at the expense of capex thereafter (cf. cash for clunkers, the homebuyer tax credit).
But a temporary payroll tax would have a miminal effect on hiring (exceptions include seasonal workers, some temps). The payroll tax would be in effect for most of an employee’s tenure. Recruitement, hiring, and termination is costly and employers have to look at the longer run.
Doesn’t the birth/death adjustment mechanism tend to underestimate during times of inreasing hiring (the reverse of what it does when jobs decrease)?
Also: yes (to your question). As noted above by others, however, government is now undercutting a recovery, not helping it. This is particularly odd when it is driven by a bunch of bible-thumping conservatives who should be able to read that 4000 years ago people knew how to handle those seven good years and seven lean years by being counter-cyclical.
Another reason why the FED needs to be independent of Congressional oversight, they have done such a fine job regulating the US financial industry that they have expanded their scope to include non US banks and non-financial firms (Harley Davidson National Bank?) Talk about mission creep. Maybe it would be easier to define their scope by stating what they can’t do. And the US taxpayer is on the hook for all their actions.
Of course the FED is batting 1000 for all their closed programs and since they don’t mark to market we’ll find out how they’re doing on their other activities when they choose to reveal it.
http://www.bloomberg.com/news/2010-12-02/federal-reserve-may-be-central-bank-of-the-world-after-ubs-barclays-aid.html
You know…I realize this is all anecdotal, but I live in a North Jersey town where pretty much all the men take the train into the city and work in the financial sector. Since the beginning of Oct. I have noticed an uptick in my proprietary “men who drop off and pick up at school” indicator. It hasn’t been this high since late 08 into 09. Men, whose wives I used to see all the time, now do the daily duty.
Some of these guys I know and I have heard their stories. Some took packages (in a re-org), some just got axed. Some of these guys have been lingering since the crash and are just now cut loose. Someone else told me that a couple of the big banks are just now starting to eliminate redundancies that were created in the (forced) mergers.
So I can’t help but think we are adding a few Red Lobster jobs and (stealthily) losing a lot of higher paying jobs (as was noted in the post about govt job cuts).
I don’t want to just be a perma-bear on this, however isn’t it true that a good number of people have been hired just to help out during the holiday rush? If we’re seeing an uptick for the sake of the shopping season, then the good employment numbers will fade in January.
You call it “Virtuous Cycle” I call it “Decrepit Cycle”. “In the week ending Nov. 27, the advance figure for seasonally adjusted initial claims was 436,000, an increase of 26,000 from the previous week’s revised figure of 410,000″
To be honest, however, you are partially correct (at least on the high tech industry). High tech has been hiring like mad …. outside the US (BRIC countries) …. What I’m seeing is that high tech is not seeing or expecting much growth in the US. They are, however, seeing tons of “potential” on emerging markets.
Accelerated depreciation? Last time I checked with the tax code experts, the multi-thousand page neverland code was far beyond that. They are waaaay beyond that with tax dodges.
And when there’s currently an excess of RRE and CRE, what’s the point?
And in terms of repatriating cash? In your dreams. At zero tax rate.
Where are the growth markets? Where is Halliburton’s corporate headquarters?
More to follow soon.
I suppose the notion that a reduction in payroll tax will somehow reduce unemployment stems from the belief that reducing the price of labor means more labor will be ‘bought.’
Except it doesn’t work that way either theoretically or in the real world. Demand for labor is derived from the demand for goods and services and, without increasing the demand for goods and services, lowering the cost of labor is not going to have much effect.
A payroll tax holiday could put a bit more money into employee pockets and increased consumption would improve the demand for goods and services hence the demand for labor but if that is your goal then just target the employee’s share of the tax, no point in granting the corporation a break on their half: If business picks up they’ll hire, if it doesn’t they won’t, taxes be damned.
Real world economics 101
“however isn't it true that a good number of people have been hired just to help out during the holiday rush?”
Hired is hired, paid is paid. It beats not hired and not paid.
@jesse The Wal-Mart-ization and feminization of the American workforce has been going on since 1981, when Reagan shredded our factories and sold them to Asia.
The US 10 yr Treasury yield hits 3% today…
http://www.google.com/finance?q=NYSE:IEF
…bond buyers getting mauled. Oh, right – I know – they all will just hold to maturity, so they get their money back.
P.S. Reagan’s cowardly retreat from Lebanon gave the green light to terror-leaders to convince suicide bombers and others that the US was soft. Arguably that’s cost us even more than his economic failures.
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